Let’s talk about tax (and foreign trusts).
Several lifetimes ago – my children and hers – and long before I discovered tax or yoga, as young women we worked for a US oil company in London as management accountants. As well as being pleased to see her I am always interested to see how she is doing in a parallel lives kind of way. She stayed and career tracked and I – well – didn’t. In a substantive sense though our lives are very similar other than maybe her husband had to give up work and my french is better.
Before the Panama Papers our prime minister – bless him – gave an interview where he had a vision for New Zealand as the Switzerland of the South Pacific. Interesting desire as it is a country where women only got the vote in 1971 and one in which a senior employee of a major US company cannot afford to live comfortably. It is french speaking though so maybe it could grow on me as an idea. But then maybe he was just thinking rich with awesome mountains and great chocolate rather than exclusive and secretive. Somehow I doubt it.
And pre Panama Papers foreign trusts fitted a little too well into that vision. Professional advisors charging fees to help rich foreigners hide their money from others. Or maybe not.
In ‘Thank you for Smoking‘ a favourite line of mine is that:
[cigarettes] are cool, available and addictive. The job’s almost done for us!.
And with foreign trusts there was no tax, little disclosure and no requirement for the money to actually ever come to New Zealand – the job was almost done for them! But after 25 years our valiant foreign trust industry with extensive marketing had only managed to earn $24 million a year with $3 million in tax.
In all the arguments about whether New Zealand was a tax haven or not, one argument got missed by the opposing side. Tax havens charge fees or levies or require the dosh to be parked in the country concerned. None of which applied here. So as a country we got the bad name but not the income – genius.
Now we have the Shewan report and John had recommended increased disclosure as had other commentators and the Greens. And I agree this should staunch any reputational damage. The difficulty I have with this though as this simply replaces one cost – our reputational damage – with another cost – additional Inland Revenue administration and distraction from their real job of ensuring compliance with our tax system.
All for $3 million in tax which may well reduce once increased disclosure is in place. At least Hon Mike please reconsider Mr S’s rec for registration fees. $50 upfront and $270 per year – really? I had no idea the department could do its job so cheaply.
Personally I prefer taxation as these are ultimately entity hybrids creating double non-taxation in the same way as the limited partnership or the unlimited liability company – both of which are registered. And it appears from paragraph 7.29 Hons Bill and Mike are open to it. Whether it survives consultation is another thing entirely.
Coz Hon Mike you are right to be considering it and I’m right behind you. If we really aren’t a tax haven then isn’t it fair that the NZ foreign trust is treated the same way as all other entity hybrids? Isn’t consistency a hall mark of a good tax system? And aren’t the foreign trusts in New Zealand for a bunch of legitimate reasons that have nothing to do with tax?
So – On y va!